After its reverse merger with Torchlight Energy, what’s next for Meta Materials (NASDAQ:MMAT) stock? More likely than not, a continued move to lower prices. Retail traders flocked into the former TRCH stock last month in the weeks leading up to the deal close.
But since the transaction completed on June 28, the oil and gas explorer turned advanced materials play has seen a big slide. Over the past month, it’s fallen from around $10 to less than $4 per share. This sell-off will likely carry on, at least until its past meme stock status fully goes away.
At a low enough price, it may be a worthwhile bet. With many applications for its technology, the company has big opportunities across many sectors. Existing areas of focus include 5G, self-driving cars and solar energy. Its biggest area of opportunity is a diabetes management product targeting a multi-billion dollar market.
There’s plenty here that could excite investors once again. Once we see further progress, that is. This may end up being a big winner down the road. For now? Hold off, as its sell-off is likely far from over.
Traders Are Cashing Out
What was it that made this one of the hottest names among traders active online? Mostly, its potential as a short-squeeze play. At the time, nearly a quarter of its free float was sold short. As you likely know, last month saw a mad dash into heavily shorted stocks, as retail traders tried to get in early on the next AMC Entertainment (NYSE:AMC) or GameStop (NYSE:GME).
But now, that trend’s come and gone once again. This has driven much of this stock’s post-merger decline. So has another factor: the heavy issuance of new shares. As one Seeking Alpha contributor detailed near the peak of the squeeze, the former TRCH stock struck while the iron was hot, launching a dilutive secondary offering.
Traders who got in at the start of the squeeze may have been able to cash out for fast profits near the top. Those who got in near or at its split-adjusted high of $10.88 per share? Some likely got out early enough to cut their losses. Others are likely holding the bag, hoping for a recovery.
A recovery isn’t likely to happen any time soon. There may be opportunity down the road with the now-named MMAT stock. It may be able to turn its technology into high levels of growth in the coming years. But today, it’s still trading at inflated prices and has plenty more room to fall.
Meta Materials Has Potential, But the Price Isn’t Right
Check out Meta Material’s most recent investor presentation and excitement over its long-term prospects makes sense. Its operating business today isn’t generating much revenue. Yet, there is a plethora of possible end users for its advanced materials, known as metamaterials.
Metamaterials are fabricated to achieve electromagnetic properties. You can use them for many applications. 5G reception enhancement is one such possible use. So is using them to deice and defog Lidar cameras on self-driving vehicles. You can even use them to improve solar panel efficiency.
But a key end use may be in the health care space, and diabetes management (glucose monitors) in particular.
As InvestorPlace’s Chris MacDonald wrote July 6, Meta Materials is making progress in producing a non-invasive glucose sensing system. Known as Glucowise, the company projects an annual market potential topping $15 billion. Before you run out and buy this stock, keep in mind it’s many years away from coming even close to this level of success. For now, still in its early stages, this potential is more than accounted for in its share price.
Therein lies the problem. Even after its sell-off, the company sports a market capitalization of around $1.1 billion. Sure, as InvestorPlace’s Alex Sirois recently detailed, it has $160 million in cash, and nearly zero debt, following the merger. It also has legacy oil and gas assets it’s intending to sell.
Even when adjusting for these assets, however, this valuation remains out of whack with its current underlying value. This points to the stock having plenty of room to fall before it’s no longer overvalued.
Hold Off for Now on MMAT Stock
If Meta Materials is pricey now, what’s a reasonable valuation? Based on its pro forma financials, revenues on an annualized basis come out to around $2.4 million. Not only that, the special dividend paid out before the deal close represents a $77.9 million preferred stock claim on its shareholder equity.
Until we see further progress with its big plans, it’s best to stay away. MMAT stock remains inflated. Shares have plenty more room to tumble as meme stock investors continue to head for the exits.
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On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.